The domestic consumption story has been strongly impacted by demonetization and the resulting cash crunch in the last two months of 2016 —so much so that it has led to a 25 percent hit taken by real estate retailers, especially in tier-II, III cities, where the volume of cash transactions is generally higher.
With the entire sector struggling to come out of the shock, the industry hopes that business will normalize from the second quarter of 2017 unless a new policy is announced. Now, say industry players, the sector is recovering while getting accustomed to the new reality, as about 50 days have passed since the announcement.
“Majority of homes are bought by salaried people, who have access to bank loans now. About 80 percent of the sales in residential segment are funded through bank loans, which are all accounted for. Though there was a dip in sales for the first fifteen days after demonetization, now slowly sales are taking place, thus proving that situation is getting normal,” said C Shekar Reddy, Immediate Past President of Confederation of Real Estate Developers Association of India (CREDAI).
CREDAI, the apex body representing realty sector, has stressed that residential realty sector might not face any hiccups due to demonetization, as transactions are already transparent and done through accounted for money. However, it foresees a negative impact on speculative transactions involving big amounts like the sale of lands and plots.
Meanwhile, others point out that a pan-India trend that emerged in 2016 was that a higher number of units were sold every quarter (1Q16-3Q16) than new project launches, reducing the inventory overhang. Demonetization, say, experts, will result in the fourth quarter readings being drastically different from the first three-quarters once they come in.
“Land dealings involving a cash component will no longer be carried out in the old ways. Post-demonetisation, the affordable housing segment will get a much-needed boost. Confined to the fringe areas of metros, this segment is expected to do better as land prices plummet in the next few years, especially in far-flung areas around Indian metros, tier-II and III cities.
“Most agricultural land transactions involved a cash component, which got affected after PM Modi’s announcement on the evening of November 8,” said Anuj Puri, Chairman and Country Head, JLL India, a real estate consultancy firm.
“It is likely to be let bor that land prices will drop in 2017 and eventually it will benefit the real estate sector. The unrealistic price hike in land happened as a result of the massive black money in the system. With demonetization, the flow of unaccounted money to land will be arrested. It is likely to come down to realistic levels. Hence a boon for the sector. The fall in land price will reduce the flat/villa prices as well,” pointed out Asset Homes, managing director, V Sunil Kumar.
Property sales in all the major realty markets like Bengaluru, Delhi-NCR, Chennai, Hyderabad, Mumbai have seen a dip, as both consumers and realtors are pushed into confusion post demonetisation.